By Douwe Miedema, European Wealth Management Correspondent
GENEVA (Reuters) - The credit crisis is boosting Islamic finance, a senior Credit Suisse (CSGN.VX: Quote, Profile, Research, Stock Buzz) banker said, luring investors in search of assets not tainted by the turmoil hitting other parts of financial markets.
But the industry needs more liquid instruments before it can offer wealthy Muslim investors asset allocation that is as effective as traditional investing, the head of the Swiss bank's Islamic investment business told Reuters.
"If you invest in Islamic finance products, you tend not to be sensitive to developments in interest rates," Zurich-based Fares Mourad said on Monday.
"I've seen asset managers in the United Kingdom who are saying that they would like to include Islamic investments in their total asset allocation," he said.
Islam bans charging interest, making sukuk -- or Islamic bonds -- immune to the big swings in interest rate expectations the credit crisis has caused in bond markets.
Sukuk is also a safe haven for investors because it is backed by safe physical assets from which returns are paid to bondholders rather than interest, Mourad said.
"It's adding steam to the engine," he said.
Credit Suisse, the world's fourth-largest wealth manager, said its Islamic banking business was growing at a double-digit pace, though staffing so far was modest, with seven people in Dubai and two based in London and Switzerland each.
Mourad declined to give financial details.
COMMODITY MURABAHA
Controversy over a contract that is widely used to underpin Islamic finance products -- so-called commodity murabaha -- was no major concern, Mourad said.
Islamic scholars had urged banks to come up with other ideas, but not banned the contract wholesale.
"It's a desire from the scholars to find innovative products, rather than sticking to the old murabaha. It's not the legitimacy of murabaha that was ever questioned."
In a commodity murabaha deal, a bank uses excess liquidity to buy a commodity, usually a metal, which it sells at a marked-up price. The buyer then sells the commodity on again at a spot price, owing the bank the mark-up.
That way, the bank has made a profit, while the buyer has secured financing from the bank. Continued...
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